The Alternative Fuel Vehicles (AFV) credit program and its role in future AFV market development

The Energy Policy Act of 1992 (EPACT) requires that fleet operators throughout the country begin purchasing alternative fuel vehicles (AFVs). In EPACT, Congress also established an AFV credit program, which uses market forces to provide flexibility to regulated entities. Under the credit program, regulated fleet operators can obtain credits for purchasing more AFVs than required; fleet operators can then sell these credits to other fleet operators who choose to purchase fewer AFVs than required. Because of network effects inherent in AFV markets, the credit program may allow AFVs to ‘cluster’ about urban hubs. This paper explores future AFV market development in light of the AFV credit program and the network effects of the AFV market.